Why the Free Market is the Ultimate (and only) Morally Just System

If, like the Classical and Marxist economists, you believe in the long-discredited Labor Theory of Value, then goods and services have objective values assigned to them, derived largely from the labor that went into their creation.

If indeed the value of goods is objective, then every exchange has a winner and a loser. Someone who trades up, and someone who trades down. If a car is purchased for $5,000, but is (somehow) objectively valued at only $4,000, then the buyer is demonstrably worse off after the transaction, and the seller is demonstrably better off.

Now, the LTV fails for numerous reasons, and the Austrian School of Economics first demonstrated that value is subjective, pioneering the so-called Subjective Theory of Value – which has now been adopted even in mainstream economics.

The STV says that value is in the eyes of the beholder. That an object can have value even if no labor went into it (e.g. a beautiful rock found on the side of a road), and that its value depends most on its scarcity (compare how the value of water and diamonds switches place when in an affluent society, or in the middle of a hot wasteland).

The Subjective Theory of Value opens the doors for mutually beneficial transactions. Now, when you and I voluntarily trade my hat for your pen, I do so because I value your pen more than my hat, and you for the exact opposite reason. At the end of the trade, both of us are better off (at least given the information we had before the trade), or we would not have voluntarily undertaken it.

Likewise, when a buyer parts with $5,000 for a car, he does it because he values the car more than his money. The exchange isn’t even of goods of equal value (for then the added effort of the exchange makes it pointless), but always occurs for goods of perceived unequal value. And the perception must go both ways. This is called the Austrian Double Inequality of Exchange.

This is the simple reason for which in a voluntary transaction, all parties benefit.

But while at the core of value theory sits the LTV, it is no surprise that Marxists see everywhere exploitation and wage slavery. They think the profit derived is stolen from the laborer, but what they do not (or refuse to) see is that the laborer consented to the wage, and did so almost certainly because however low someone else might perceive his salary to be, and however difficult his job might be, this is the best he can do right now – or he would be doing something else.

Just as the salary of the laborer is increased thanks to his use of capital and the risk-taking of the entrepreneur (who risks and delays current consumption for the promise of future returns) – so does the capitalist benefit from the laborer, who puts his capital to use.

The relationship is mutually beneficial.

Nor is a capitalist any different from a worker. The designation is purely academic – just like the difference between consumer and producer. Everyone can start a business, or work for a salary. And everyone is at different times both a consumer and a producer of value. Throughout our lives, we may fulfill different roles in an economy. The wertfrei (value free) economist distinguishes between them for purposes of analysis. The politician and ideologue distinguishes between them to foster class warfare, divide the people, and capitalize on the jealousy and enmity of some towards others.

These peddlers of fear and strife must ignore developments in economics over the past 100+ years, or else admit that their farce is nothing but.

Instead, the collectivist must expunge from his dictionary all references to the word consent, and instead lump into one category human interactions that are diametrically opposed in their nature.

Because it’s not just about morality. Mutual consent between all parties to an interaction is the foundation of economics. Without it – there are no incentives for growth, and hence no growth to speak of.

An involuntary transaction which occurs without the consent of all parties, often under violence or threat thereof, takes from some at the expense of others. Rather than bring to the interaction something that both parties value more than what they already have, and thus leave both happier after than before, a coercive transaction first takes from the victim his safety, and then trades it back in return for something he values less.

In other words, a coercive transaction violates a means-based morality because coercion violates consent; a consequentialist morality because a coercive transaction leaves one person better off at the expense of another; and unhinges the foundation underlying economic growth – the right to property and the incentives free men have over slaves to produce for themselves and those they care for.

Coercion is a plague on both the moral fabric and prosperity of society.

Whereas free markets encompass that set of transactions which at its core have voluntary and mutual consent. And that includes gift-giving and sharing just as much as trading for currency. The distinction is never over self-interest or altruism, and always over consent or coercion.

One man’s slice of the economic pie doesn’t have to come at the expense of another’s. The pie itself can be grown. But that requires mutually consensual transactions. Taking a slice of someone else’s pie to grow your own creates a vicious zero-sum world.